Nissan, Renault in $5.4B deal

March 27, 1999: 11:25 a.m. ET

Alliance will create the world's fourth largest automaker

NEW YORK (CNNfn) - Nissan Motor Corp. and Renault announced a $5.4 billion alliance Saturday, creating the world's fourth largest automaker.
     The cash deal gives Renault a minority 36.8 percent stake in the heavily indebted Japanese company and ends the year-long guessing game as to who would control Nissan.
     The widely expected alliance has raised some questions among analysts, though, who wonder if the teaming of one ailing automaker and another recently restored to profitability can flourish.
     Investors have shown recent concerns about the same issue. Renault's shares have been under pressure since talks between the two companies began after DaimlerChrysler pulled out of negotiations earlier this month.
     Renault (PRNO) shares moved higher Friday, however, after chairman Louis Schweitzer flew to Tokyo for last-minute talks about the terms of the deal. The stock rose nearly 2 percent to 34 French francs in Friday trading after rising 7 percent Thursday.
     Starting over
     "With Nissan we have a remarkable combination of complementarity and commonality," Schweitzer told a news conference Saturday. "We believe Nissan can start over again and get out of its financial problems."
     Renault obtained 36.8 percent of Nissan Motor, 22.5 percent of its truck affiliate Nissan Diesel Motor Co and the European finance subsidiaries in return for its cash infusion.
     It will supply three top executives to Nissan's senior management, including Carlos Ghosn, Schweitzer's number two, who is credited with turning around Renault's performance. He will be Nissan's chief operating officer.
     Renault will also hold warrant bonds which, if exercised, could boost its stake in Nissan as high as 44 percent, but Schweizer stressed he did not want a majority stake in Nissan.
     The terms are likely to reassure investors, who were hoping Renault would be able to place key people in top jobs without taking on too much exposure to Nissan's liabilities.
     "What's interesting about this deal is that each brings what the other lacks. Renault has financial expertise and, industrially, it knows how to develop successful vehicles," said Patrice Solaro, auto analyst at Julius Baer.
     "Nissan has worldwide know-how, which Renault is looking for, and it is one of the most efficient manufacturers -- along with Toyota -- in terms of developing cars rapidly that are inexpensive to assemble," he added.
     A Nissan stake in Renault?
     Executives at both companies said that once Nissan regained its health, it was likely to take a stake in Renault.
     "Unfortunately, at this point, it still has to be a one-way relationship," Nissan President Yoshikazu Hanawa said.
     Talks between the two firms moved to the forefront this month after German-American car giant DaimlerChrysler and Nissan broke off their talks.
     A spokesman for DaimlerChrysler said the group might now shelve a light-truck venture with Nissan.
     "It is unlikely that our tie-up to jointly develop and produce light trucks with Nissan Diesel will continue after the Renault/Nissan deal, but no decisions have been taken yet," the spokeswman told Reuters on Saturday.
     The French and Japanese governments hailed the deal, which marks one of the first forays by a French firm into Japan.
     "This brings together two giants to make a world giant, in which Renault will have a decisive role, with its industrial and social talents," said French Industry Minister Christian Pierret.
     Some analysts worry that Renault may not be strong enough to rescue the larger Japanese company, particularly as competition is growing fierce in Europe.
     But Schweitzer and Hanawa were brimming with confidence.
     They estimate they will save $3.3 billion in the three years from 2000 to 2002 alone by sharing purchasing costs and auto platforms, starting with a plan to combine the platform -- or chassis -- of Renault's Clio compact and Nissan's Micra.

-- from staff and wire reports

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